There’s no better time than now to explore the possibilities for cryptocurrency in Nigeria
By Kanyinsola Ojeshina
If Cryptocurrency could speak, it would repeatedly ask the Central Bank to get out of the room.
The conversation on wealth across the globe is changing. Many financial technology (‘Fintech’) solutions are re-inventing banking as we know it, and without strategic regulation, one Fintech in particular threatens to declare it obsolete.
Cryptocurrency (‘Crypto’) is arguably the most controversial form of Fintech today because while others are easier to understand and therefore regulate, Crypto is shrouded in complex calculations and encryptions, making government agencies unsure of what stance to take.
Many people become pretty confused when topics related to Crypto and Blockchain technology come up, so let’s simplify things a bit.
Crypto is a form of currency that only exists digitally; has no central issuing or regulating authority; and relies on cryptography (which basically means ‘secure communication’) to prevent fraud. Essentially, it is ‘digital money’ transactions regulated by nobody, that use a decentralized system to record and manage the issuance and exchange of units.
Crypto transactions are conducted using Blockchain technology, which is an algorithm created by a combination of cryptography, software engineering and math.
Blockchain first popped up in 2008, when a person or group of people known only as ‘Satoshi Nakamoto’ published a document containing the code to Blockchain, before going on to create Bitcoin (one of the more popular Cryptos in the world today).
While several conspiracy theories exist, till this day no-one has been able to figure out who Satoshi really is- which is ingenious if you consider the fact that Blockchain is all about secure communication.
Author and venture capitalist, William Mougayar gave a pretty simple description of what Blockchain does by likening it to ‘Google Docs’.
If you have ever used Google Docs, you have experienced the convenience of being able to update a document with other people in real time.
Now, think of Crypto as a system where funds can be transferred from one account to the other, with both parties having a clear view of the transaction process- without the need for an approving middle-man.
So, we’re talking about a transparent platform that allows currency flow from point A to B. No transactional cost. No approval pit-stops along the way.
It hasn’t happened yet, but soon, people will use Crypto to solve the longstanding issues of international fund transfers, global e-commerce transactions, and possibly payments for basic everyday services.
Today, more people are hopping on Crypto trading platforms like Luno, Coinbase and even BuyCoins- which allows Nigerians trade Crypto like Bitcoin, Ethereum and Litecoin at little to no extra cost. And more companies across the globe are accepting Crypto as payment options.
Microsoft allows Bitcoin to be used to top-up Microsoft accounts; Playboy launched a new payment option that would allow consumers access exclusive adult content using Crypto; and Facebook is set to launch a Crypto called Libra, in partnership with platforms like MasterCard and Visa, to help facilitate everything from Uber to Spotify payments.
What happens if the rest of the world catches up? What will you do with all your Naira?
But as promising as Crypto sounds, it is not without risks. Cryptomining purportedly requires vast amounts of electricity to be sustained.
There is also the fear that just as Satoshi brought Blockchain, some brilliant minded hacker will one day find a way into the transactions, causing people lose millions of fiat currencies that were converted to Crypto.
Then there are those who make the case that Crypto is being used for money laundering and terrorism activities across the globe.
You can now understand how global regulatory agencies may be losing sleep over how best to capitalize on Crypto.
How does a government regulate something it has little to no control over? If governments fail to strategically regulate the use of Crypto, do they risk losing control of currency, people and ultimately country?
The Central Bank of Nigeria is yet to address Crypto so in the meantime, we can consider the possibilities by looking at approaches that other countries have taken.
The United States government has stated that Crypto will generally be classified as taxable securities but doesn’t address important issues like whether service providers that accept Crypto as income; or organizations/individuals that accept Crypto donations are expected to pay tax.
In Argentina and Spain, Crypto is subject to income tax. In Switzerland, Crypto is taxed as a foreign currency. In April, China made known its intentions to possibly ban Crypto, having already banned ‘Initial Coin Offerings’.
The Chinese Government is maintaining that cryptomining is a waste of electricity and comes with risks that pose a threat to National Security.
Senegal, Tunisia, The Marshal Islands and Venezuela have taken another route by creating their own Central Bank-issued digital currencies using Blockchain; with Countries like Dubai, Uruguay, Singapore and Iran currently testing out theirs.
While the possibilities for the future of Crypto seem endless and exciting on one hand, the risks if not strategically contained, could pose a threat to the Nation’s economy.
Nigeria is faced with a plethora of options regarding Crypto regulation, and the Government must take great care in coming to a practical decision.
When the Central Bank responds, I can’t help but wonder if Cryptocurrency will be the one that exits the building.
Editor’s Note: This article was originally published in The Spark Magazine. Find the magazine here to read other articles.
Kanyinsola Ojeshina is currently a lawyer at AELEX Legal Practitioners & Arbitrators with a background in copywriting, media and content creation. She has written for several notable publications and organizations over the years.